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RIM, R.I.P.? (Part II)

by Matthew DeBord

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A Blackberry Bold is displayed at the 2009 International Consumer Electronics Show at the Las Vegas Convention Center January 8, 2009 in Las Vegas, Nevada. Ethan Miller/Getty Images

Business Insider is engaged in plenty of speculation about struggling BlackBerry maker Research in Motion today, after the company disappointed Wall Street with its fiscal fourth quarter results yesterday. Part of that speculation involved interpreting RIM's CEO's comments about "strategic opportunities" as "let's look for someone to buy us." At the New York Times, Michael J. De La Merced joins that chorus.

Honestly, we don't think so. This is a company that is dying and in a state of transition. It runs on its own platform. Most hardware makers have picked their partners for software. Transitioning to RIM's software doesn't make sense unless RIM's next software is awesome. In which case, another hardware maker like Dell or LG could buy RIM and use BlackBerry 10.

But, that's sort of silly for RIM, right? They wouldn't want to sell if the software is good.

Exactly. What's the point? RIM could turn itself around without help.

But that's pretty unlikely, right?

Yep.

So that's it for RIM? Make great software or die?

Pretty much. It's possible someone wild card jumps in. Maybe a carrier takes a chance on RIM if it gets cheap enough, or maybe a Chinese phone maker buys the company to get a nice entry into North America, or maybe a PE firm looks at RIM's still impressive cash flow and decides to take the company out and try to fix it.

Some problems with this. And we'll get to some of the reasons why RIM is actually a good company financially, but losing the PR battle. But first...

The are really only two name-brand hardware manufacturers in the smartphone game: Apple and RIM. Each has a very well-defined audience. Android is of course not a piece of hardware but an operating system, installed on a hodgepodge of devices that people buy mainly for the physical feature set: a bigger screen, a nicer camera, etc. The only name-brand Android device is the Motorola Droid, but it's all mixed in with flashier phones from HTC and Samsung.

What about the Windows Phone? Yeah, what about it...

The obvious point to make here is that RIM is where Apple was before Steve Jobs returned to the company. It's a hardware maker. It has a very loyal customer base who, while getting smaller, is still probably relatively larger than Apple base was when PCs were the name of the game in tech. When Jobs came back to Apple, he consolidated the base before introducing the iPod. RIM should think about doing the same thing, but with a business device or feature set for the BlackBerry platform.

...RIM has $2 billion of cash and is still highly profitable. Yes, RIM's business will continue to crater, but it will be a long time before RIM stops generating cash. In fact, in the last quarter, RIM generated more than $600 million of cash. If someone bought RIM and stopped some of the dumb investments the company is probably making, it could presumably wring a ton of cash out of the company before it collapses. So there's even a financial reason to own it.

RIM is far from not having enough money to invest in innovation. And it should be highly motivated to do so. Meanwhile, everyone knows that:

•Android is all about getting the features the iPhone doesn't have — until Apple incorporates them. Android is basically Apple's lab right now

•Windows Phone is a nonstarter (although Microsoft's partner, Nokia, could be staging a comeback, based on its heft outside the U.S. market)

•The iPhone 5 isn't going to be some radical new gadget — it's going to be an evolution of the iPhone 4S, but with a bigger screen and perhaps a slightly different form factor

Bottom line? If RIM bolsters its business and government base, stressing security, and creates a new device that plugs directly in social media (Facebook, Twitter, Spotify et al.) it could save itself. Matt Burns at TechCrunch sets the stage:

Thankfully for RIM, smartphone innovation has slowed drastically recently. Android and iOS are turning to novelties like bigger screens and silly voice controls to sell more devices. RIM couldn’t keep up with these platform’s product churn during their roaring early days. Since smartphone development has seemingly plateaued lately, RIM should be able to show up with competitive products that match the current standard feature set.

RIM’s days of ruling both the consumer and enterprise market are likely in the past. Products that are equally innovative and trendy are key to winning consumers. The upcoming BlackBerry 10 products look to be innovative enough although they’ll probably be far from trendy.

If that's enough to get RIM back in Wall Street's graces...well, that could be enough.

Previously in The Breakdown

The Breakdown explains what's behind Southern California business and economic news. It describes the effects the headlines have on you: whether you're an investor, a business owner, an employee, homeowner, consumer or just someone who wants to know how to save a buck.